The cost of long-term care: Tipping point approaching?

People are living longer; fewer caregivers are living at home; the cost of care is rising; government financial assistance for individuals who don’t qualify for Medicaid is uncertain. Does this portend a potential long-term care crisis?

Some organizations and experts say “yes.” And they worry that many, particularly baby boomers moving into retirement, won’t be prepared for it.

“By 2030, many retirees will not have enough income and assets to cover basic expenditures or any expenses related to a nursing home stay or services from a home health provider,” the Family Caregiver Alliance, a nonprofit caregiver advocacy group, stated in a 2015 analysis.1

When is care needed?

People need a caregiver when a chronic condition, illness, or trauma of some sort limits their ability to carry out basic self-care tasks like preparing meals, eating, bathing, and getting dressed.

More than 8.3 million people currently receive support from the five forms of long-term care services — home health agencies, nursing homes, hospices, residential care communities, and adult day care services centers, according to statistics from the Centers for Disease Control and Prevention.2 A majority of these individuals are aged 65 and older. And that segment is likely to grow.

And as this segment grows, the lifetime probability of being unable to handle the activities of daily living or becoming cognitively impaired increases. Caregiving for their needs by someone at home is rare, with the prevalence of caring for an adult estimated at 16.6 percent, according to the National Alliance for Caregiving.3

Altogether, long-term care expenditures are expected to triple from $115 billion in 1997 to $346 billion by 2040, when many baby boomers will be in their late eighties and nineties, the Alliance noted. In recent years as many as one in four people age 45 and older is not prepared financially for the possibility of suddenly needing long-term care, according to the most recent AARP research on the topic.4

The funding picture

If this projection pans out, those without financial recourse to affording long-term care will rely on government programs like Medicare and Medicaid to shoulder the financial burden. A growing concern is the future ability of the government to do just that.

Medicare only covers a limited amount of long-term care needs, such as for short stays in a skilled nursing facility (a maximum of 100 days), for hospice care, and for some home health care. That’s because the program is designed primarily for post-surgery recuperation and rehabilitation, illnesses, and accidents. While Medicaid, a joint federal and state government program, generally offers more expansive long-term benefits, recipients must have limited income and assets to be eligible.

“Today, the U.S. government pays the lion’s share of all long-term care costs through Medicaid primarily and to a lesser degree through Medicare,” said Steven A. Moses, the president of the Seattle-based Center for Long-Term Care Reform, founded to promote public policy that directs public resources toward those most in need of long-term care. “Medicare long-term services are very limited—some say nonexistent—and Medicaid suffers from problems of access, quality, low reimbursement, institutional bias, and loss of independence.”

Moses is concerned that current federal and state government programs funding long-term care costs for eligible participants are a ticking financial time bomb. Citing statistics on Medicaid enrollees compiled by the Kaiser Foundation, Moses pointed out that only about 10 percent of Medicaid distributions, on average, go to aged individuals, many of whom may need long-term care at some point. As baby boomers enter their sunset years, they are likely to increase the volume of Medicaid distributions going toward aged individuals.

“The risk and cost of long-term care explodes at age 85,” says Moses. That means the country’s long-term care infrastructure could be greatly challenged in 2031, Moses added, as the first baby boomers turn 85.

The solution would be for the government to substantially increase funding to both Medicare and Medicaid. If this turns out not to be the case, the most viable alternative, Moses said, is for the government to target increasingly scarce social welfare dollars to the “genuinely needy.”

If the government moves in this direction and does restrict funding, this means that many people who today qualify to receive government-funded long-term care will not receive it in future, “creating a greater sense of urgency and personal responsibility among those financially able to save, invest, or insure for long-term care,” he added.

This is just another in the many complicating factors involving the future need for, and the cost of, long-term care. No one is predicting, for instance, that the costs will come down.

“The hourly cost of hiring a caregiver is sure to go up, since there will be more people needing long-term care in future and fewer caregivers to provide it,” said Claude Thau, a long-term care consultant and insurance wholesaler.

Fewer caregivers to serve everyone’s potential care needs affect both the quality of care and its cost, he explained. “For many people, caregiving does not come naturally to them; it is not considered a pleasant job,” said Thau. “At a time when more people will need care, the supply of caregivers will remain stagnant, unless the fees paid for the services rise appreciably. In addition to current minimum wage and unionization pressures, this will have a dire impact on the overall cost of long-term care.”

Another factor — big business — is playing a role in expectations for rising care costs at custodial facilities like nursing homes. “Many small, `mom-and-pop’ type caregiving facilities operated by people who are passionate about providing care are being acquired by larger organizations,” said Thau. “As these businesses grow and consolidate, they tend to apply more financial discipline to improve the margins, charging higher prices over time.”

There’s another factor enlarging aggregate long-term care costs: the care often prolongs the life of those requiring it. “The longer people live increases the overall expense of care,” Thau explained. “A case in point is my mother-in-law. When she went into a long-term care facility because of alcohol-induced dementia, her family and friends expected she wouldn't live long. But the care was so remarkable that she looked healthier than she had in years—and was. She died in her 16th year in the nursing home. The costs added up.”

According to the Genworth 2017 Cost of Care Study, the cost of a semi-private room in a nursing home is $235 per day or $7,148 per month, whereas a home health aide charges approximately $135 per 8½ -hour day.5 Family caregiving, of course, is the least expensive, since the care is provided free of charge. Approximately 65.7 million Americans are involved in such informal care to family members and close friends.

But family caregiving has its drawbacks, chief among them is the time and effort this consumes for those providing care. Care quality is another concern. A study by the United Hospital Fund and AARP Public Policy Institute found that most family caregivers are unprepared for needed tasks, which may include cleaning the wounds of those needing care, dispensing the right medications, at the right dosage at the proper time, and coping with individuals who refuse to take their pills.

The need to prepare

As the populace ages, the cost of long-term care rises, and the government acts on the ticking time bomb that Moses hears in the distance, there will be fewer dollars from Uncle Sam to absorb long-term care expenses, if he is correct in his assumptions. This puts the onus increasingly on the public to financially prepare for the possibility.

That may lead to more people considering their options, such as setting aside money for future long-term care needs or purchasing long-term care insurance. (Related: Long Term Care Insurance)

But for some, Medicaid, at least in its current form, will remain a better answer. A study from the Center for Retirement Research at Boston College argued that it’s “optimal for only about 20-30 percent of single individuals to buy insurance.” 6

Still if the tipping point is approaching, more people will likely need to look at their own circumstances and options.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.